Cost Cutting in the BPO Industry:

BEST PRACTICES
A Case study.
By Abhilash Surendran

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 Overview
We might only be seeing the tip of the iceberg, but the current economic slowdown
has not spared even the largest conglomerates in the country. With NASSCOM having
predicted a slowdown in growth back in April, 2008, the entire industry has had a
delayed response in budget reductions, and the most affected have now started
resorting to the dreaded pink slips. This report intends to look at ways of cost-cutting
without having to trim your work-force or stop the required inflow of personnel.

This document contains a list of likely steps that can be taken by BPO firms in pruning
the costs and revising budget allocations. Budgets are under severe pressure in all
BPOs across the country, and organizational and strategic leadership is asking all
business units and domain heads to contribute to budget reductions.

In the operations of a BPO, there are many factors that can lead to reduction of
budgets. Most of them are relatively easy and simple and the result can be noticed
within the short term itself. However, the ones which bring about the most
incremental savings are those which take a longer duration to accomplish. These
involve restructuring the supply chain management, training and storage
management methodologies. The correct mix of cost-cutting activities is to maintain
both long-term and short-term policy changes. The short-term steps help show
immediate profits which can provide much-required buoyancy to the business
operations. The long-term steps ensure that the business maintains stable growth,
and is expected to yield continued results, even in the long run.

Further in this document, I have attempted to present cost-cutting measures from

different strategic viewpoints, vis-à-vis, Training, Administrative, HR, IT, Office
communication, SCM and Portfolio Management. Most of the measures have been
arrived at from industry observations, and may or may not be suitable for
implementation everywhere, while some may already have been implemented. The
purpose of this document is purely research and can be adapted to the needs of the
organization.

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 1. The Training Angle
The simple cue that every BPO seems to have taken is, cut out Onsite Trainings! Or
taking it to a higher plane, cut out even classroom training. Let’s take a look at few of
the trends that have been emerging in training owing to the slow-down:

σ Greater use of Video-conferencing and audio-conferencing. Bridge is where the

training is, literally!

σ Newer methodologies like webcasts, web conferencing, net meeting,

skypecasting and collaborative email systems are become more popular due to
their cost-effectiveness. Applications like Webex, Microsoft Live Meeting,
Microsoft Groove, Think tank etc, have helped reduce physical training to a
large extent.

σ The consultant era is bygone. Companies are developing training pools from
within the organization by restructuring the training leadership to bring in
people with experience in instructional design and content development.

σ Many Virtual Learning Environments (VLE) or Learning Management Systems

(LMS) are now increasingly available as free open-source web applications.
Tools like Moodle, Dokeos, and OLAT help educators and training managers
create effective online learning sites.

Other common steps of reducing training budgets include:

σ Create on-the-job aids, and self-help workbooks.

σ Cut training sessions that do not add value to the organization.

σ Reduce participant time for face-to-face training. Make up for that time in
Computer-based training (CBT) methodologies.

σ Review material costs and printing practices.

σ Replace original graphics with stock images that are available free on the
internet.

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 2. SCM and Portfolio management.
σ Maximizing staff utilization and allocating cross-functional responsibilities.

In a remarkable move for retailers across the country, Pantaloon India Ltd, in
mid-2008, when a possible recession was hovering over the horizon, decided to
integrate the management, IT and HR department of its various units into one.
Shoppers stop followed suit, studying various options for cost rationalization
and overhead reduction. 1

The same methodologies may not augur well for BPO if followed verbatim, but
can be tweaked to achieve the desire results. The entire idea is to not resort to
pink slips, rather put a cork on the recruitment drive, and allocate more cross-
functional responsibilities for the existing staff. In RIL in 2008, a department
head, who was used to having an army of people, has been asked to limit his
sub-staff strength to just one.2

In other BPOs, innovative ways have been found to maximize staff utilization.
Workforce management and command centre operations have been merged
with the central MIS function, thereby ensuring that the reporting and
communication process remains simple to comprehend, and easy to control at
the centre. Business development teams have been aligned to the marketing
function, thereby just bringing about a minor distinction between the approach
towards a prospective client and an investor.

σ Cancelling nonviable projects

Before you proceed, a warning! This act requires a high level of maturity in
portfolio management. The key here is performing a cost-risk-benefit analysis
on the existing project portfolio, setting a threshold for projects, falling below
which, the project is just a white elephant. It might be a prestige pill for the
company, but in dire times, dire actions are required. If any project has been
identified to be below the threshold, the first attempt should be to review the

1
http://www.livemint.com/2008/08/10235913/Retailers-tighten-purse-string.html?h=B
2
http://economictimes.indiatimes.com/Is_slowdown_forcing_staff_down-
sizing_in_RIL_/articleshow/3869214.cms

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 SLAs, and see if a mutual agreement could be reached by changing any of the
billing clauses. If that doesn’t happen, the project has to go. However, unless
the organization is able to balance cost, risk and value elements, there is every
possibility that an over-budget project is a candidate for cancellation,
irrespective of the value they provide.

σ Create shared disaster recovery centers.

Disaster recovery centre is a must for any project to ensure that operations do
not get affected by any unexpected incidents. However, during times of
economic crunch, it is better for the organization to reduce the number of
backup sites by relying on fewer centers with more comprehensive enterprise
plans.

3. The Admin Angle

The general admin in any organization are the key people to turn to in times of a
crunch, simply because, they can give you the quickest returns on efforts taken to
control budgets. The first things that an admin head has to consider during such dire
times are the existing vendor contracts. If the organization is going through a lean
patch, it’s most probable that the overall industry is also going through one, and it is
also the right time to consolidate and renegotiate vendor contracts. This is especially
handy if the product or service has many competitors. A centralized procurement
process enables a birds-eye view of all contracts in existence and the potential vendor
benefit of fewer contracts with higher volumes, and lower cost of purchase and
administration.

Other common cost-cutting initiatives that have been noticed in the industry on the
admin front are listed below:

σ Avoid color printouts. Switch to Black and White.

σ Cut down use of ACs by at least 2 hours a day.

σ Telecom line audits. Audit the telephone line usage to determine if the Telco’s
are overbilling or if the phone lines are unused/misused.

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 σ Cut down on newspapers and magazines.

σ No parties on company expenses.

σ Cut on toilet paper, soap and teabags.

σ Maintain AC temperature not below 20°C to save electricity.

σ Take printouts or photocopies only if required.

σ Switch off computers when not in use.

σ Go paperless. Less usage of papers.

σ Encourage employees to use own transport. This has to be accompanied with

the view of cutting out any dry runs.

4. Dealing with IT budgets

Most often than not, the one specter that haunts the top management in BPOs
across the country is the IT budget of the company. In the wake of the slowdown,
companies across the world are trying to reduce their IT spend. IT expenditures are
being revisited. CTOs are on the lookout for hardware with lower maintenance
costs, softwares with lower license fees and services without nice-to-have
features. Let’s take a look at some other steps that can bring about drastic decline
in IT budgets.

σ Server Consolidation

Reduce the number of servers in operation by modernizing applications into

fewer operating systems, and therefore, requiring fewer servers. Eliminating
servers by consolidating capacity also helps to reduce the support staff
required. Another key measure that can be undertaken is deploying Linux and
other OSS (such as JBoss and MySQL) on servers. However, it is also important
to make a primary evaluation as to whether an open-source alternative can
guarantee the required performance levels. Implementing a storage area
network (SAN) and taking advantage of technologies such as thin provisioning
and tiered storage, alleviate the issue of reduced capacity and improve storage,

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 while addressing purchase requirements and power consumption at the same
time.

σ Restructure Email storage

One of the primary causes of high storage management costs in a company is

its email archives. Hence, it becomes imperative for IT heads to update existing
policies to reduce archiving. Email storage also has to be restructured to move
the archives to less costly storage systems.

σ Centralize Desktop Application and portal Management

Centralizing user desktop configurations helps the network administrators by

restricting user access to low-level control panel or configuration utilities, and
also prevents additional locally installed applications. All these help restrict the
power consumption overall in the workplace. Centralized desktop management
tools like Desktop Central, LANDesk, Microsoft SCCM etc. automates regular
desktop management activities like installing software, patches, and service
packs and standardizes the desktops by applying uniform configurations. All
these help by reducing the requirement for additional staff. On the other hand,
portal management can also be centralized. Apart from enabling a seamless
and personalized user experience between different affiliate portals and
websites, centralized portal management also helps the organization by
reducing administrative time and costs.

σ Consolidate IT procurement under one organization

This measure is extremely helpful if there are multiple strategic business units,
and each have their own procurement plans. If all the SBUs maintain their own
sources of direct IT procurement, the company loses out on economies of scale.
In order to achieve greater economies of scale, the different procurement
functions, specifically IT procurement functions, need to be joined into shared
services. This has the capacity of combining small procurement units into one
centralized procurement system.

σ The best things come free!!

The one measure that all BPOs seem to turning to, in order to bring about fast
reductions in cost, is reducing the number of licensed softwares in use in the

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 workplace, and replacing them with open-source desktop softwares. The trend
has been very visible in the industry shift from MS Office to Open Office or Star
Office. If interoperability issues can be kept to a bare minimum, this measure
yields quick and effective cost reductions. Another trick here is to renegotiate
shelfware maintenance. There are plenty of software licenses that the company
has purchased, but does not tend to use much. For such unused softwares,
negotiate a reduction in maintenance.

An additional step that has been doing the rounds is corporate promotion of
Skype and Microsoft office communicator, both VOIP-based, for client
interactions, over traditional telephone lines. That should have been done long
ago.

5. HR Initiatives
Their role is highly overlooked when it comes to cost-cutting, but the fact is that
HR initiatives can bring about major reductions in budget allocations towards
employee satisfaction efforts. Lets take a look at few of the key HR initiatives that
are capable of bringing about incremental changes if implemented.

σ Go the E-way

The new motto of HR is not employee service, but employee self-service. HR

departments across the country, especially in small and medium businesses, are
leveraging the advantages of technology to turn themselves into eHR
departments. The internet now provides the HR with the ability to transfer
information and many common administrative tasks to the employees, freeing
HR personnel to pursue more strategic initiatives. The easiest place to start is of
course e-recruiting and e-compensations.

σ Ideation Portal

Six Sigma professionals have always maintained that it was necessary for an
employee-centric organization. And major IT/ITES companies are finally
discovering its potential now. Ideation portal is just an open portal for the
employees to submit their ideas on anything that affect the organization. And

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 in such dire times, the ideation portal obviously will be tuned to the sounds of
cost reduction.

σ Take a break

That’s exactly what BPO companies are saying to their tenured employees.
Sabbaticals are one of the options on the cost-cutting radar of strategic
managements. This allows companies to shift their employees to take up social
activities relating to corporate social responsibility programmes. Coupled with
the act of scaling down hiring projections, sabbaticals help to reduce the
employee-related expenses for a company, which currently make up almost 55-
60% of an ITES firm’s total spending cost. And for most of the BPO employees
who have taken a break in their education for a career foothold, the option of a
sabbatical to pursue their higher education is almost like a windfall.

σ Use new, innovative communication channels

The HR and marketing divisions of an organization are always looking to reach

out to employees and investors respectively. The new trick that is doing the
rounds is through utilizing lower cost channels in outbound activities.
Companies are taking the bold step of moving towards channels such as e-mail,
sms and podcasts, instead of eliminating their HR and marketing
communications all together.

σ Stay at home!

No, we are not talking about the dreaded pink-slip here. Lately, the idea of
various HR departments across the country have been to promote
telecommuting and working at home (WAH) among its employees. The basic
prerequisite is only to identify the job functions that are appropriate for
teleworking and designing training programs for the teleworkers. And of
course, there is an investment required for all the necessary tools like Virtual
Private Networks (VPN), videoconferencing and VOIP. In return, it can provide
for increased service and international reach, employee flexibility, increased
employee productivity and reduction of absenteeism. It promotes an
environment of management by objectives, as opposed to management by
observation. The former is more handy in the current economic turmoil that we
are facing.